Friday, September 22, 2017 9:48AM / FBNQuest Research
Maintaining Outperform rating
Presco’s Q2 2017 topline growth surprised slightly, beating our forecast by 10.7%. The company continues to benefit from increased demand thanks to supportive government policy. This has also given it increased pricing power. Presco has so far this year consolidated on its prior year’s impressive financial performance as well as its plantation expansion drive, growing H1 sales and profit by over 70% y/y and 80% y/y respectively.
We expect similar trends in H2 and forecast a cumulative y/y sales growth of 58.6% to N25bn by year end. As such, we have reviewed our estimates and raised our price target by 3.6% to N66.1, implying a potential upside of 14.0% from current price levels. Our new price target is driven by the rollover of our valuation to 2018 and a 7.0% average increase to our 2017-2018E EPS forecasts. Presco shares have gained 44.6% year-to-date (vs. NSEASI’s 30.9%); they are currently trading on a 2017E P/E multiple of 7.7x for a 27.1% EPS growth in 2018E. We retain our Outperform rating.
10% y/y PBT growth in Q2 but q/q declines across the P&L
Presco’s Q2 2017 results showed sales growth of 30.4% y/y to N5.7bn. Similarly, PBT and PAT increased by 10.1% y/y and 2.5% y/y respectively. The bottomline growth was significantly influenced by a gross margin expansion of 649bps y/y to 70.1%. Added to it was a 15.8% y/y rise in biological asset revaluation gain to N469m.
Both factors were large enough to offset the impact of a 28.4% y/y rise in opex, a -91.9% y/y reduction in other operating income, a 128.7% y/y rise in net finance charges as well as a -N243m exchange rate loss. Tax expense was 27.3% higher y/y, resulting in the modest PAT growth. When compared with the company’s stellar Q1 2017 results, the quarterly trends showed declines. Sales fell by -21.2% q/q, while PBT and PAT were down by -49.0% q/q and -57.6% q/q respectively.
With respect to the H1 figures, sales increased by 70.6% y/y to N12.8bn, PBT advanced by 84.1% y/y to N7.6bn while PAT increased by 84.4% y/y to N5.6bn. Responsible for the PBT growth were a 1,220bp y/y expansion in gross margin to 75.5% and a 67.5% y/y rise in biological assets revaluation gain to N1.1bn, despite a huge 185.0% y/y jump in opex to N2.5bn and a -N434m exchange rate loss. Income tax expense was 83.3% higher y/y.
If we strip out the gains on biological asset revaluation and the fx loss, the underlying results reveal that Q2 PBT was flattish y/y while PAT was down -11.5% y/y. The H1 results were still up, although by a lower magnitude: PBT and PAT grew by 78.6% y/y and 76.9% y/y respectively.
1. Presco Plc H1’17 Accounts Delayed Due to the Need to Confirm Biological Assets Valuation
2. PRESCO Declares N5.56bn PAT in Q2'17 Result,(SP:N74.50k)
3. Presco Reports Q2 2017 Results; Sales Up by 30.4% YoY
4. PRESCO Declares N3.90bn PAT in Q1'17 Result,(SP:N64.54k)
5. Presco Q4 2016 and Q1 2017 Results Review - Upgrading to Outperform
6. Presco Plc - Impressive Start to FY'17, Ahead of Estimates